In an opinion piece in the Wall Street Journal, Holman W. Jenkins, Jr. responds to a New York Times editorial that claimed that President Obama has been frustrated throughout his two terms by the "political dysfunction" caused by a recalcitrant Republican-led Congress. In his response, Jenkins touches upon a subject near and dear to community bankers and, not coincidentally, to the author of this rag sheet.
If Mr. Obama was “deeply frustrated,” the reason was the American people’s lack of support for his agenda. And what the Times calls his regulatory strategy would better be described as unbridled rent seeking.
That’s the term economists use for exercising government power to create private gains for political purposes. Consider:
Mr. Obama’s bank policy dramatically consolidated the banking industry, which the government routinely sues for billions of dollars, with the proceeds partly distributed to Democratic activist groups.
His consumer-finance agency manufactured fake evidence of racism against wholesale auto lenders in order to facilitate a billion-dollar shakedown.
His airline policy, urged by labor unions, led to a major-carrier oligopoly, with rising fares and profits.
His FDA is seeking to extinguish small e-cigarette makers for the benefit of Big Tobacco and Big Pharma (whose smoking-cessation franchise is threatened by cheap and relatively safe electronic cigarettes).
His National Labor Relations Board, by undermining the power of independent franchisees, is working to cartelize the fast-food industry for the benefit of organized labor.
We could go on. Mr. Obama’s own Council of Economic Advisers complains about the increasing cartelization of the U.S. economy—as if this were not a natural output of regulation. In a much-noted Harvard Business Review piece this spring, James Bessen, an economist, lawyer and software entrepreneur, cites increased “political rent seeking” to explain the puzzle of rising corporate profits in the absence of job creation and economic growth.
The truth is, government playing neutral arbiter over the private economy doesn’t produce rents. A stable and predictable regulatory system produces only mingy or non-existent rents.
Jenkins' allegation that "rent seeking" regulatory "reform" that has resulted in thousands of pages of new regulations that burden banks big and small, as well as pushing the envelope on "disparate impact" and other theories designed to squeeze blood and money out of banks through regulatory enforcement actions, is leading to the "caterlization" of the U.S. economy in general and the U.S. banking system in particular, strikes a chord in many ears It's not the only reason for the consolidation of the banking business, but it's one of them, and a not insignificant one.
As to the ideologues who deny any regulatory burden exists, or if does exist, isn't having a negative effect on community banks (based, I assume, upon Vladimr Lenin's assertion that "A lie told often enough becomes the truth"), the House Financial Services Committee recently published a raft of contrary opinions from the folks on the firing line. Read 'em and weep.
As to where the community banking business, and the country in general, are headed, I have to agree with the conclusion of the CEO of a Mid-Western community bank, communicated to me in an email this weekend: "This doesn't end well."
No, it doesn't. Unless, of course, you're a rent seeker.